Late payments are a common occurrence for small businesses across Australia but it should not be tolerated any longer. Any delay in payment can significant affect a small business cashflow and so it is imperative for small-business owners to know how to avoid spending longer on debt collection and to get paid for the work and service rendered. Last week we revealed our first two tips to avoiding late payments, here are the rest:
3. Get paid on time
Define your payment terms and, again, implement the steps for issuing invoices and following up on payment as part of your business processes. Firstly, understand if the account goes beyond 30 days without payment, preliminary collection steps should be carried out such as follow-up notices and phone calls. You should refer the debt to a collection agency at approximately 60 days, and try not to allow debts to go beyond 60 days. By doing this, you will improve your cashflow and decrease your risk of incurring a bad debt. While our Canary in the Coal Mine research shows an alarming 63 per cent of businesses are waiting over 90 days before referring debts to a collection agency. Ideally, you should never refer debts older than 90 days as this significantly increases the risk of it becoming a bad debt.
4. Have a dedicated collections person
Identify someone in your business to be responsible for all debt collection activity within your business. Often, this person will be your bookkeeper and it’s critical that you do not interfere with decisions made by them. Provide them with the resources and time to do this job properly, and understand that this is a time-consuming process. While technology can help, the most effective way to get paid is simple making personal follow-up calls to debtors with outstanding accounts. You would be surprised how often simply picking up the phone can result in your bills being paid.
5. Think like big business
Small businesses shouldn’t be at the mercy of big companies; if you are a reliable customer most will agree to negotiating better payment terms with you. This way, you will begin to balance out your creditors against your debtors and free up cash.
The inquiry into payment terms has been a catalyst for a wider industry discussion on the treatment of small businesses. While legislative reforms on the payment times for business-to-business transactions between large companies and smaller suppliers is being considered, it’s important not to wait or rely on these reforms being introduced. Setting up your own trading terms makes good business sense, and will ensure that cash flowing in exceeds cash flowing out.
While you may never have to enforce these terms with your good customers, knowing these processes are in place will give you peace of mind should anything go wrong. Understanding and protecting your cashflow is vital for your business to thrive, following these simple steps will ensure you don’t get caught without enough cash to survive.
Roger Mendelson, CEO, Prushka